Bonds Weaken As Fed Surprise Sinks In

By Michael Aneiro

Treasuries are off a bit today after rallying sharply yesterday when the Fed surprised everyone by not tapering its $85 billion monthly bond purchases. The ten-year note is down 8/32 in price to yield 2.737%, per Tradeweb data, while the 30-year bond is down 16/32 to yield 3.783%.

Market pundits continue to react today, with many expressing frustration with the Fed’s seemingly cryptic and/or inconsistent communication, even if they agree incoming economic data hasn’t been great. Here’s a sampling:

“There were many different reactions to the Fed’s decision yesterday to maintain the pace of monthly asset purchases. The most common one I’m hearing this morning is confusion. Why the head fake, Mr. Bernanke? But the Fed did not mislead us; I can not emphasize that enough, the Fed did not mislead the markets. The Fed was consistent with their data dependent stance. As I’ve written several times, the Fed was willing to taper sooner than later IF, and that was a big IF, the labor data continued to strengthen…. The Fed did not undermine their credibility by holding off tapering, the Fed would have undermined their credibility if they had tapered given the weakness in the labor market.” - Lindsey Piegza, chief economist, Sterne Agee

“After the Fed delivered its ‘shock and awe’ policy announcement on Wednesday that left the market scrambling to unwind and close out hawkish positions going into the FOMC decision, we’ve had a chance to reassess our views as to what the Fed may have been thinking. And while we admit we were part of the herd on the street that got the call wrong, we continue to hold by our view that despite the concerns outlined by the Fed as to why they did not taper, the costs do outweigh the benefits and a taper should have been forthcoming.” – Adrian Miller, fixed-income strategist, GMP Securities

“Clearly the Fed isn’t quite as worried about the cost-benefit calculus of asset purchases as many market participants had feared…. Unsurprisingly, a number of questions at the press conference were directed at the apparent miscommunication. Markets have gotten ahead of themselves, particularly in inferring that the consideration of tapering implied that the first rate hike would likely be earlier as well. But the Fed also needs to accept some of the responsibility for the fallout. Prior Fed communication was consistent, with most brokers expecting a tapering and the Fed still has not clarified what the quantitative criteria for tapering is.” – Jeremy Lawson, senior international economist, Standard Life Investments

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.